Comment: The last thing we need is a wealth tax
By Jonathan Isaby
Several weeks in advance of the Lib Dem conference, Nick Clegg was awarded the TaxPayers' Alliance's (TPA) infamous 'pinhead of the month' award for having proposed an emergency wealth tax in a Guardian interview at the end of August.
If only it had been a story to fill a few column inches at the end of the traditional silly season.
Alas not; the deputy prime minister is still talking about it, and won plaudits at the Liberal Democrat conference at the weekend for calling for higher taxes on unearned wealth.
But before he insists on going any further down that road, Mr Clegg would do well to look at the annals of history, and in particular the late 1970s. At that time, when the country was also in something of an economic mess, none other than Denis Healey, the then Labour chancellor, proposed introducing a wealth tax.
It had even been in the Labour manifesto in 1974.
But as TPA founder Matthew Elliott has previously explained elsewhere, the Treasury set out in stark terms why it was felt to be a very bad idea:
1. It would lead people to seek non-resident status, resulting in a considerable outflow of funds in the form of dividends and interest.
2. Since it would have applied to all wealth held world-wide, foreign employees in foreign companies resident here would be subject to tax, resulting in a big movement of banks, insurance and shipping business moving out of the UK.
3. Assets held here would be affected. This would reduce the level of business in UK.
The civil servants involved in the introduction of the wealth tax met the Treasury permanent secretary in secret and concluded that "the tax would produce little revenue, be extremely difficult to administer and risk serious damage to the economy and run into serious opposition".
As Denis Healey was later forced to admit: "I found it impossible to draft [a wealth tax] which would yield enough revenue to be worth the administrative cost and political hassle."
He was right, and recent real-life experiments with wealth taxes have demonstrated this to be so.
Many countries which have tried wealth taxes have found they produce unfair results and capital flight on an enormous scale. Given that in recent years a number of those countries – including Sweden, Spain, Finland, Iceland and Luxembourg – have abolished their wealth taxes, it would be a disaster if the UK went in the opposite direction.
With excessive taxes already choking off the economy and placing a huge burden on families and businesses alike, the last thing ministers should be considering is new taxes. Politicians have spent too much, not taxed too little.
Instead the government should be working to reform and simplify Britain's existing tax system, abolishing loopholes to ensure that everyone pays no more and no less than their fair share. Part of making taxes fairer should be to ensure that all streams of income are only taxed once and eliminating existing double taxation – not creating yet another levy on assets which people have bought with income that has been taxed already.
For more detail of how such a system would work, politicians need look no further than The Single Income Tax, the final report of the 2020 Tax Commission, published earlier this year by the TPA and the Institute of Directors.
Jonathan Isaby is Political Director of the TaxPayers’ Alliance. Follow him on Twitter. Follow @isaby
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